This Article examines patterns in bankruptcy filing data to determine whether this data supports the simplistic Rational Actor model that is the basis for Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). The Article closely reviews the Rational Actor and Situationist models–the current debate about human behavior in bankruptcy context. Analysis of empirical data of pre-BAPCPA, post- BAPCPA, and current filings demonstrate that while BAPCPA reduced the number of filings nationally, unexplained variation in filing patterns exist. These findings suggest that the Rational Actor model provides a limited understanding of human behavior in the bankruptcy arena. As salient economic factors–poverty, unemployment, and foreclosure rates–fail to adequately explain the local variation patterns, this Article explores non-economic factors to develop a better understanding of debtor decision making. Wide local variation patterns in filing data demonstrate that a more nuanced model that takes into account both nationwide and local situational pressures is required for understanding debtor decision-making and developing effective policies.

Robertsaid

If this article were written two years ago, it would have been called “Are Banks Rational Actors or Situational Characters.”

The fact is that when house prices were going up, social scientists were continually doing audit studies and experiments to argue for MORE lending to people with poor credit histories, especially minorities, thought to be responsible for over half the defaulted subprime dollars.

Now you’re seeing revisionist history, and many of the same sociologists and psychologists pretending they were really concerned about banks pressuring borrowers to take on bad loans. In reality these situationist experts were likely to be testifying in anti-redlining lawsuits that banks were irrationally ignoring potential borrowers because of hidden biases.

At least Alan Greenspan has enough honor to admit he made a mistake.

Laurasaid

Regarding Robert’s comment, please provide citations about who was promoting lending to minorities and who was actually making the decisions about lending. I do not see revisionist history as Robert claimed, but rather revisionism in terms of who was profiting without taking the risk’s downside. Public bailout of lenders rather than borrowers?

It is now April 2010 and in China the common wisdom is that house prices will continue to rise and that it couldn’t possibly be a bubble because all the major players are still involved.